The dissolution process for a limited liability company can be a stressful time for any entrepreneur.
Shutting the doors on your business venture is an uncomfortable process, but completing your dissolution correctly can help you avoid many serious repercussions down the line. But can an LLC be sued even after it’s dissolved?
The potential for a lawsuit after closing your LLC is obviously a troublesome thought, so in this article we’ll discuss whether this is a possibility for your company. How can you avoid lawsuits against your dissolved LLC? Let’s find out!
What Does Dissolution Mean for an LLC?
If you want to permanently shut down your business operations, you’ll need to formally dissolve your limited liability company with the state government.
This includes preparing and filing dissolution paperwork with your state, as well as liquidating the assets of your LLC, settling any outstanding liabilities, and providing legal notifications to any individuals and/or business entities that do business with your company.
It’s important that you complete each of these steps exactly as you’re supposed to, because failing to do so could lead to you as the LLC’s owner being held liable on a personal level for the debts and other liabilities of the LLC.
Once your LLC has been dissolved, you will no longer have to pay maintenance fees with your state, and you’ll be done with annual reports and franchise taxes too. Most importantly, completing the formal dissolution process provides protection against lawsuits down the line. But does it remove the risk entirely?
Can a Dissolved LLC Be Sued?
It’s important to note that the rules and regulations for limited liability companies vary depending on which state you form one in.
As a result, each state has its own laws regarding dissolutions, so even though the process is quite similar in most states, there could still be some unique wrinkles in the dissolution process. With that in mind, you should ask your state’s Secretary of State office to determine if lawsuits against dissolved LLCs are allowed, and what the statute of limitations is for them.
One thing that is often misunderstood about the dissolution process is that dissolving an LLC is not the end of its existence. After you move to dissolve your company, your LLC will go through the winding up process, in which your business ceases to operate and begins settling its affairs. Following the winding up period is the actual cancellation of the LLC, which is the true end of the road.
For the most part, states will allow lawsuits against dissolved limited liability companies for a period of three years. After that, the LLC is considered to be canceled, and there can no longer be any new lawsuits brought against the company.
However, if your LLC is not properly dissolved, the state may allow your creditors to continue suing your business indefinitely. In addition, when an LLC is dissolved (whether properly or not), the LLC’s ownership must pay any known and present creditors before distributing assets to its owners.
If you don’t pay these creditors, you open yourself up to personal lawsuits, as those creditors seek payment for the money your LLC owed them.
How Can You Avoid Lawsuits Against a Dissolved LLC?
The first thing you can do to prevent lawsuits from being filed against a dissolved limited liability company is to follow all relevant rules and regulations for the dissolution process.
This means filling out your state’s dissolution paperwork accurately and truthfully, and paying the relevant filing fee with your state government. In return, you should receive a document confirming your LLC’s dissolution.
Another step that sometimes gets overlooked is canceling foreign qualifications in other states. If your LLC operates as a foreign entity in any states other than your home state, you need to cancel these out-of-state registrations. If you don’t, you will continue to be charged for any ongoing maintenance requirements, and it’s much easier for creditors to claim that your business is still operational and eligible for a lawsuit as well.
Finally, some states require dissolved LLCs to acquire what’s known as a tax clearance, which proves that you have paid your final taxes, and have no outstanding obligations. If your state requires a tax clearance and you don’t have one, it’s probable that your dissolution is still pending.
Should You Hire Someone to Dissolve Your LLC?
If you’re concerned about making a mistake while dissolving your limited liability company, you do have some options. Some entrepreneurs choose to hire a business attorney to dissolve their limited liability companies, which does give you the confidence that every step was completed correctly. However, an attorney’s fees can be very expensive, especially for a company that’s going out of business.
Another option is to hire an online business services company to dissolve your LLC. With these companies, you can save a significant amount of money compared to hiring an attorney, while still getting professional assistance with your dissolution.
If you’re interested in this option, there are a lot of options — most of which help you form an LLC as well as dissolve it. Take a look at our top three picks for this service.
- Swyft Filings ($99): Swyft Filings has an excellent price point for dissolution service, and they have one of the best customer feedback reputations in the industry, with thousands of positive reviews all over the web.
- LegalZoom ($129): LegalZoom is the most popular company in this industry, with millions of customers and tons of brand power. We like their extended customer support hours, and they also provide a 100% satisfaction guarantee that provides great peace of mind.
- Incfile ($149): Incfile can’t match Swyft Filings’ price tag, but they’re one of the most well-rounded service providers around. They have fantastic customer reviews, and we’re also big fans of their support department.
As long as you follow all the instructions for the dissolution process, you should be safe from lawsuits once the statute of limitations for suing a dissolved limited liability company expires.
If you would feel more comfortable with this process if you had professional help, you can hire an attorney or a business services company to assist you.